Posted by Adam Rossi
It can take a bit of time to develop better spending habits, but the benefits are ongoing and extensive. Unfortunately, financial issues caused by bad spending habits are common among most Americans, with the Census Bureau reporting that more than 91 million people said they were having trouble paying their standard household expenses in July 2022. At some point in life, most individuals experience financial pressure. Although economic and social conditions can certainly influence finances, in many cases, financial hardship is a result of bad spending habits that continue over time.
The good news is that establishing better financial habits is easier than many people think — and the sooner they get started the better. As soon as you recognize a potential problem, it’s time to step back and make conscious choices to develop better spending habits. This helps relieve financial stress and helps you establish the financial responsibility necessary to stay out of debt and sustain a strong credit history well into the future. In turn, this can help you obtain a much-needed loan when the time comes to purchase a vehicle or a home.
To help you start forming better spending habits, Hudson Valley Community Credit Union (HRCCU) experts have put together eight simple tips designed to guide even the most financially stressed individuals. From contributing to savings accounts to sticking to monthly budgets, these actions can help you develop better financial habits and reap the rewards for the rest of your life.
1. Set a Monthly Budget
Creating — and sticking with — a monthly budget is arguably one of the most important steps in any adult’s life, and it’s the first logical step in building good spending habits. Without itemizing a list of anticipated income and expenses, people can find themselves in tricky situations due to finances that are stretched too thin.
Creating a monthly budget is the best way to monitor and control monthly spending; however, it can be difficult to customize a budget to a particular lifestyle. Budgets can be as simple as listing each of your bills and expenses in a spreadsheet on a computer or in a paper notebook. The point is to create a budget to determine what expenses must be paid and where you may be overspending, such as frequently dining out instead of saving money by cooking at home. This allows you to correct poor spending habits and develop good ones instead.
2. Reduce Credit Card Spending
Using a credit card isn’t necessarily a bad thing. In fact, a credit card can be quite handy in emergency situations and may offer valuable rewards and cashback bonuses when used responsibly. In addition, when credit cards are used and paid off each month, it can increase your credit score, making it easier to get approved for loans.
However, when bad spending habits lead to credit card debt, it can be challenging to get back on track. In January 2023, Bankrate.com found that 35% of Americans reported carrying regular credit card debt each month. Unless it’s absolutely necessary for short-term reasons, to build good financial habits, you should avoid charging amounts to your credit card that will take more than three months to repay.
Remember that most credit cards charge high monthly interest rates. In fact, according to Forbes, the average credit card interest rate in May 2023 is 24.25%. If you’re only paying the minimum monthly amount, you will end up paying your credit card company far more money than you actually spent on your purchases.
Rather than using credit cards to pay for large purchases, consider opening a savings account in advance to accumulate the funds for large purchases like a new automobile or a trip. This habit can help you avoid credit card debt because it ensures that you keep money in your monthly budget to pay credit card bills on time without accumulating additional debt.
3. Avoid Large Impulse Purchases
Balancing a checkbook seems to be a lost art thanks to the ease and convenience of online banking, but checking your bank accounts regularly should still be a habit. Splurges and impulse purchases can make buyers happy in the moment, but impulse purchases add up quickly and take a toll on your financial stability.
Part of developing good financial habits is knowing how much money you have at any given time and how much you can reasonably spend. If purchases aren’t closely monitored, impulse buys can lead to bad spending habits that ultimately deplete your savings account.
Be sure to practice good spending habits by recognizing the urge to make an impulse purchase and taking the mental steps necessary to stop yourself from rashly buying in the moment. Try to wait anywhere from a week to a month before making the purchase. After that time, if you’re still thinking about the product and believe it will benefit you, purchase it using budgeted money. This avoids the “impulse” component and forces you to take time to consider if the purchase is worth it. It also gives you time to save money for the purchase.
4. Make a Grocery List and Start Meal Planning
Similarly, another good financial habit is to avoid small impulse purchases at places like the grocery store, where a lack of planning can lead to buying food that goes to waste because you can’t or won’t eat it before it expires. Most people spend a large portion of their monthly budget on meals and food. If you take time to plan your meals at the beginning of each week and create a custom grocery list, you can ensure you have everything you need — and nothing you don’t.
Meal planning not only helps avoid food waste, but it also allows you to take advantage of weekly sales and purchase wisely to keep your diet on track. If you don’t always have time to cook at home each night, you can still take advantage of meal planning and grocery lists by making and freezing your meals ahead of time — maybe once a week or even once a month. That way, you not only save money but also get to enjoy a home-cooked meal on busy nights.
5. Take Advantage of Better Pricing Options
Whether you’re making a major purchase, such as a home or a vehicle, or a smaller purchase like a home appliance or a new television, it’s a good financial habit to make sure you shop around first. One way to avoid overspending and keep your financial life healthy is by doing research and comparing prices on all major purchases.
Depending on the item, it could be worthwhile to consider purchasing a gently used option or one that is refurbished. For example, many companies accept trade-ins for items like smartphones, and then they refurbish and resell the traded models. Although these purchases may not include the latest models available, a gently used smartphone will sell for substantially less than the latest version while only being a year or two old.
6. Avoid Fees and Other Unnecessary Charges
Penalty charges, such as late fees, and other unnecessary expenses that occur because of poor financial management compound bad spending habits. Therefore, it’s important to avoid unnecessary fees by keeping track of your spending and accounts using tools such as online and mobile banking.
You can avoid overdraft fees by forming the habit of checking your accounts each day — especially before making any large or unusual purchases. Use your budget and other online tools to schedule your bills to make sure you pay on time and avoid late fees. Staying organized by creating a digital calendar with reminders is another way to avoid fees for items like missed appointments at the doctor’s office or hair salon.
7. Monitor Your Usage
In the same vein as unnecessary fees for overdrafts and late payments, it’s also important to monitor the costs of your regular expenses, including subscriptions and memberships as well as living expenses like utilities. Through the budgeting process, do an audit of all your regular monthly payments, including subscription services, and take stock of how much you pay for them as well as how often you use them. Many people can save a lot of money each month by cutting out subscriptions that they no longer use or only use intermittently.
Another good financial habit is to routinely check recurring monthly bills, such as utilities and insurance, to make sure you are not overcharged. Your monthly water bill may spike if you get a leak in your sprinkler system, for example, or your electricity bill may skyrocket if you leave on the air conditioning while you are on vacation during the summer. In addition, make sure to regularly check on your insurance rates to make sure they don’t dramatically increase for no discernible reason. Getting new insurance quotes once a year is one way to make sure you continue to enjoy the lowest rates available.
8. Think of Your Future and Focus on Goals
If you want to have better spending habits, you need to keep the big picture in mind at all times. What is it you really want? To own a home? Buy a new car? Save money for your kids’ college fund? When you keep these financial goals in sight, small sacrifices are much easier to make, and it’s easier to build good spending habits — and avoid bad ones.
Understanding the importance of being dedicated to your budget and future financial health is the key to keeping more money in your pocket and easing financial strain in the future. Eliminating bad spending habits is beneficial for both the present and your long-term goals. Even if you can’t think of a specific financial goal right now, the unpredictability of life means that having extra cash when you need it can make or break you. Always remember that life can change in an instant, and it can be hard to recover if your finances are not in order.
The more proactive you are today, the more savings you will have tomorrow. To learn more ways to practice good spending habits, better ways to save for the future, and how Hudson River Credit Union can help, contact us today.
